The policy responses to the debt bubble demonstrate crude political consideration rather than economic understanding. If excessive government indebtedness is a major source of the problem, why increase the government debt? Why encourage households to go yet further into debt?

The prognosis is catastrophic if projected government policies are not cut back...

Individual banks and their counterparties should not be bailed out, although the system should be protected by ensuring that failing banks are wound up in an orderly fashion – this is the only way to restore market discipline.

They further warn:

It is not impossible that the US will experience the kind of economic collapse from first- to third-world status experienced by Argentina under the national socialist governance of Juan Peron.

"We have learned some things from comparable experiences of the 1930s' Great Depression, perhaps enough to reduce the severity of the current contraction. But we have made no progress toward putting limits on political leaders, who act out their natural proclivities without any basic understanding of what makes capitalism work."

Pardon me for saying this, but BULLSHIT! You can find other economists (Paul Krugman, for instance) who will say just the opposite. Namely, we should apply more stimulus in the form of deficit spending to get the economy moving again.

Economics is not a hard and fast science where hypotheses can be tested and proven or disproven in a laboratory. These assholes don't know any more about where the American economy is going than I do.

The trouble is that this entire argument (both sides, really) assumes that national level economic policy may do the job. If there was a central lesson in the inability of existing policy institutions around the world in the chaos a year ago, it is that global action will be inevitable at one point. This is a very different case from the 1930. Yet, there is one similarity: lack of action will just keep the structural problems accumulating.

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